Dividend Suspensions and Cash Flow Risk During the Covid-19 Pandemic

42 Pages Posted: 29 Jun 2020

See all articles by Davide Pettenuzzo

Davide Pettenuzzo

Brandeis University - International Business School

Riccardo Sabbatucci

Stockholm School of Economics; Swedish House of Finance

Allan Timmermann

University of California, San Diego (UCSD) - Rady School of Management

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Date Written: June 2020

Abstract

We examine the effect of the Covid-19 pandemic on firms' decisions to suspend dividends and estimate a model that quantifies the effect of suspensions on growth in aggregate dividends. Our estimates show that dividend suspensions had a large impact on expected future dividend growth and also helped predict the sharp declines observed in broader measures of economic activity. Firms with high leverage and low profitability were more likely to have suspended their dividends during the pandemic as were firms with the largest negative stock returns prior to the dividend announcement date. While firms that suspended their dividends experienced large negative abnormal returns, firms that substantially reduced but did not entirely eliminate dividends saw large positive abnormal returns around the announcement date.

Suggested Citation

Pettenuzzo, Davide and Sabbatucci, Riccardo and Timmermann, Allan, Dividend Suspensions and Cash Flow Risk During the Covid-19 Pandemic (June 2020). CEPR Discussion Paper No. DP14921, Available at SSRN: https://ssrn.com/abstract=3638025

Davide Pettenuzzo (Contact Author)

Brandeis University - International Business School ( email )

Mailstop 32
Waltham, MA 02454-9110
United States

Riccardo Sabbatucci

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Swedish House of Finance

Drottninggatan 98
111 60 Stockholm
Sweden

Allan Timmermann

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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